The Problems of Employee Misclassification

In our last post, we talked about the increasing prevalence of employee misclassification in the construction industry. The reason this is so problematic in construction especially is that there are often independent contractors working on different construction jobs, so classifying workers in this way doesn’t appear to be incorrect. The reality of it, though, is that if a worker is doing all of the same tasks as an employee, and is following the regulations imposed upon employees, it’s likely a misclassification to call that worker an independent contractor.

Employee Misclassification

Independent contractors differ from employees in that they work for themselves, make their own hours, and work for different customers. They also are responsible for paying a portion of their own payroll taxes, unemployment tax, and workers’ compensation insurance. If a worker is being classified as an independent contractor, but is sticking to the same schedule as all of the other employees on a job, and is working the same jobs as all of the employees of the same company, chances are that person functions as an employee of the company.

Employers who are looking to misclassify their workers in order to exploit the system have a couple of ways to cut corners. Most directly, some employers will instruct workers to label themselves as independent contractors as a condition for taking the job. For people who are in tight financial situations, labeling themselves as independent contractors and taking the various financial hits that are involved still means they’ll be taking home a paycheck. If their bottom line is met, there is often little room to negotiate, even if that means they’re being exploited.

Additionally, some employers will get workers from labor brokers. Labor brokers process paychecks and distribute tax forms, which is an extension through which classifications may wind up conveniently “lost in translation” for the employers, resulting in employee misclassification. Creating that gray area for things to get overlooked gives employers the opportunity to exploit the system and avoid taking responsibility.

When employee misclassification occurs, and employees are documented as independent contractors are hurt on the job, they’re denied unemployment benefits through their employer, because according to the law, they’re self-employed. But misclassified employees don’t take out individual workers compensation policies like real independent contractors do, so they just wind up completely helpless.